13 lines
833 B
Plaintext
13 lines
833 B
Plaintext
HV-IV Divergence
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An HV-IV divergence occurs when HV declines and IV rises or vice versa.
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The classic example is often observed before a company’s quarterly
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earnings announcement, especially when there is lack of consensus among
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analysts’ estimates. This scenario often causes HV to remain constant or
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decline while IV rises. The reason? When there is a great deal of
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uncertainty as to what the quarterly earnings will be, investors are reluctant
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to buy or sell the stock until the number is released. When this happens, the
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stock price movement (volatility) consolidates, causing the calculated HV
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to decline. IV, however, can rise as traders scramble to buy up options—
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bidding up their prices. When the news is out, the feared (or hoped for)
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move in the stock takes place (or doesn’t), and HV and IV tend to converge
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again. |